A percentage that represents the adjustment for
pay increases for a specific period of time.

Alternative
minimum tax.

An income tax system designed in 1969 to
ensure that wealthy individuals and corporations pay at least
some tax regardless of their deductions. Taxpayers compare
their regular tax results to a flat rate and pay whatever
amount is higher. Because the program was never indexed to
inflation, the tax applies to an ever-increasing number of
people.

Angel
investor.

A wealthy individual who invests in a startup
company.

Annual
bonus.

Companies that offer annual bonuses can do so in
a variety of ways. Some offer profit sharing, which rewards
every employee for a job well done after a successful quarter
or year. Typically, an employer will set aside a predetermined
percentage of its payroll budget (between 2.5 and 15 percent)
and divide that amount among employees in the form of bonuses.
This type of bonus does not necessarily take into account
an individual's performance, since every employee receives
either the same bonus or a bonus equivalent to a percentage
of base salary. It's not uncommon, however, for a company
to award annual bonuses to top-performing employees only and
base the amount of the bonus on an individual's achievements
or performance, for example.

The way an investor maximizes return and
minimizes risk through investment choices appropriate for
the prevailing market conditions. For example, when interest
rates are low, investors allocate more of the portfolio to
equity; and conversely, when interest rates are high, investors
allocate more to interest-bearing securities. See also
portfolio.

Attendance
bonus.

Some employers reward employees who have a perfect
attendance record for the year. This is often a one-time cash
bonus awarded at the end of a certain period, typically the
calendar year or a company's fiscal year.

Average.

The sum of a list of data points divided by the number of
data points.

Average
hourly wage.

The monetary compensation paid by an employer
to a worker for a given number of hours worked, exclusive
of premium payments for overtime, shift differentials, cost-of-living
allowances, etc.

Average
work week.

Usually, the expected or actual period of employment
for the week, usually expressed in hours. Some uses of the
term relate to the outside dimensions of a week (i.e. seven
consecutive days).

A mutual fund that buys a mixture of stocks
but invests at least one-fourth of its money in bonds.

Base
pay.

The fixed pay an employee receives for carrying out
standard duties; this pay does not change due to performance
or results achieved. See also salary.

Benchmark.

An internal job matched to an external job of similar content.

Benefit.

A program in addition to monetary pay, designed to ensure
employee health, financial well-being, and quality of life.
Examples of benefits include health insurance, vacation time,
parental leave, retirement plans, and life insurance.

Beta.

A measure of the level of financial risk in a company. It
is one of the factors used to determine what kind of return
an investor should expect.

Blue-chip
fund.

A fund made up of blue-chip stocks.

Blue-chip
stock.

A stock from a high-profile, well established company
with a proven track record in earnings and dividend payments.
Also known as a large-cap stock.

Bond.

A debt or a loan. An IOU note that lists the value of the
original loan, the amount of interest to accrue, and the date
the entire loan will be paid off. Bonds can come from government
agencies or corporations looking to raise money.

Bond
mutual fund.

A mutual fund invested primarily in bonds.

Bonus.

A payment or reward given to an employee, a team, a division,
or an entire company, because of performance. Bonuses can
be paid as cash, but also as stock options, shares, or other
valuable things.

Broad
banding.

A type of salary structure in which the various
salary grades are collapsed into a few very wide bands.

Buyer's
agent.

A real estate agent who works primarily with buyers.
See also real estate agent, real estate broker, realtor.

Profit from selling an investment, for example
profit from selling a stock. In the United States, you owe
tax on the capital gains on an investment when you realize
them (sell the shares; or, with options, purchase the shares).

Central
tendency.

In statistics, some clustering around a central
value in a distribution of data, usually determined by one
of the measures of location (mean, mode, or median).

Change
of control clause.

A provision in a golden parachute used
to define a specific amount that will be paid if there is
a takeover of the company or some other change in control
or leadership. See also golden parachute.

Commission.

An amount paid to a salesperson for a sale, usually expressed
in terms of percentage of sales.

Common
stock.

A stock bought on the open market.

Compensation
philosophy.

The employers articulated approach to
how it will pay employees, including its target position in
relation to the compensation market for various jobs and its
position on how it will motivate and reward employees for
contributing to the companys success.

Compensation
survey.

A survey of compensation practices and trends
among participating companies, compiled by an independent
research organization. Compensation surveys enable their participants
to learn market compensation practices for jobs offered in
their organizations.

Compounding.

Additional interest accrued if profits from investments are
reinvested.

Conduit
IRA.

A rollover IRA. This Individual Retirement Account
holds money taken from your 401(k) plan while you figure out
what to do with it.

Conservative
investment.

A lower-risk investment designed to preserve
capital.

Consumer
Price Index.

A measure of the average change in prices
paid by urban consumers for a fixed group of good and services.
It is calculated and issued monthly by the Bureau of Labor
Statistics. See also Producer Price Index.

Current
profit sharing.

A type of bonus in which employees receive
some percentage of the profits each year as a reward on top
of base salary. Usually expressed in terms of a percentage
of an employees salary, and the rate may differ according
to levels in the organization.

The date to which the data in the Salary
Wizard is aged. See also aging factor.

Debt-to-income
ratio.

In real estate, the ratio of the monthly house
payment (including loan payment, property taxes, and insurance)
to gross monthly income. Typically, lenders finance buyers
whose debt-to-income ratio will not exceed 28 percent of their
gross monthly income. See also overall debt ratio.

Dental
care.

Dental plans are purchased in addition to, or separate
from, regular medical plans. They generally cover only regular
dental services. Doctors are selected according to the rules
of the core health plan.

Dependent.

Someone whose livelihood depends on your financial support
 for example, children or elderly parents. Many employer
benefits cover dependents in addition to the employee.

Dilution.

Dilution is the decrease in ownership (effecting share
price and earnings per share) that current owners experience
when new shares are issued. Stock option plans have a direct
impact on dilution because when employees exercise their stock
options, it is as if more shares have been issued. The existing
shareholders are therefore diluted. During salary negotiations,
some employees ask about the potential dilution of their shares
in future financing rounds and other events. See also overhang.

Discretionary
bonus.

A reward given out at the employers discretion,
often as a result of skipping or ignoring the process of setting
goals, monitoring performance against them, etc.

Diversification.

A way to reduce investment risk through several categories
of investment, such as stocks, bonds, mutual funds, money
markets, real estate, precious metals, and other categories.

Dividend.

A portion of profits a company or mutual fund pays to its
shareholders.

Dollar
cost averaging.

A method of investing which involves contributing
money regularly in the same investment. The theory assumes
that in rising markets, more stocks are bought at a lower
price.

Domestic
partner.

A person who lives with someone in a committed
relationship. Legal definitions and employer definitions vary
from state to state and benefit to benefit.

Dual
agents.

Real estate agents who split their time between
buyers and sellers. See also real estate agent, real estate
broker, realtor.

Many employers offer financial rewards to employees
who pursue additional education or training that's directly
related to the job. Ultimately, this education makes the employee
a more valuable asset to the company, allowing the company
to bill him or her out at a higher rate, for example.

Elevator
story.

A summary of an idea, especially a business plan
or a job seekers objectives, that is brief and focused
enough to be related convincingly to an important contact
during a ride in an elevator.

Employment
Cost Index.

A fixed, employment-weighted index which tracks
quarterly changes in labor costs (wages, salaries, and employer
costs for employee benefits), free from the influence of employment
shifts among occupations and industries. Occupations in the
private sector and state and local governments are surveyed.
The ECI is published quarterly by the Bureau of Labor Statistics.

Employee
stock purchase plan.

Participants in this type of plan
are often able to purchase stock at a discounted price (usually
at a 15 percent discount from the current market value). Participants
don't pay taxes on the investment until they sell their stock
(presumably for a profit).

Entrepreneur.

A founder or a founding partner in a new business.

Equity.

In compensation terms, stock options. Equity is the value
of a business beyond any claims on it; or it is the funds
provided from the sale of stock. To have equity is to have
(partial) ownership.

Equity
adjustment.

An equity adjustment is an increase in base
salary intended to provide a more fair and consistent pay
level to the individual. See also market adjustment.

Equity
fund.

A mutual fund invested primarily in stocks.

Equity
growth fund.

A mutual fund invested primarily in growth
stocks. Also known as a growth stock fund.

Equity
income fund.

A mutual fund with 60 percent or more of
its portfolio in income-producing equities.

Equity
overhang.

The number of shares in an option, plus the
number of shares reserved for future options or restricted
stock grants. It is expressed as a percentage of outstanding
shares.

Exempt.

Exempt employees are those who are not subject to the
provisions of the Fair Labor Standards Act. Examples include
executive, administrative, outside sales, and professional
employees; and employees of federal, state, and local governments.
Exempt employees are almost always salaried (except various
computer professionals). See also nonexempt.

Exercise.

The process by which an employee purchases stock he or
she has the option to purchase. Being offered an option does
not require the employee to purchase the stock or exercise
the option.

Exercise
price.

The
price at which a holder of stock options is able to purchase
the stock. Also called the strike price.

Expiration
date.

The date by which the owner of the option must
decide whether to exercise the option and actually purchase
the stock.

The Fair Labor Standards
Act, which was designed to protect and maintain fair, just
working conditions. The act's provisions, which include minimum
wage, overtime, and a few others, do not apply to all employees.
Some employees are legally exempt from the regulations, and
others are legally nonexempt. Those who are nonexempt get
overtime and must be paid at least minimum wage; while those
who are exempt are not eligible. See also exempt and
nonexempt.

Fee-for-service.

See indemnity plan.

Fixed
compensation clause.

A provision in a golden parachute
that determines the amount the executive will be paid if he
or she is asked to leave before the end of the employment
contract. See also golden parachute.

Fixed-term,
fixed-sum clause.

A provision in a golden parachute that
defines the amount to be paid if a fixed-term employment contract
is not renewed. See also golden parachute.

A bonus program by which employees or groups
of employees are rewarded for determining and implementing
ways to save the company money that are consistent with the
companys business objectives.

Geographic
differential.

A number used to pinpoint the difference
in salary levels for two regions or cities. The U.S national
average typically has a value of 100.0, as it is usually the
point of comparison. For example, at a salary of $30,000,
Dallas, Texas, has a geographical differential of 95.0, which
means this salary is 95 percent of the national average.

Global
equity fund.

A mutual fund with more than 25 percent of
its portfolio in securities traded outside the United States.

Going
public.

A company goes public when it makes the transition
from being privately held (owned by individuals and private
funds such as venture capital funds), to offering its first
group of stocks for sale on a common market (via a stock exchange,
such as the New York Stock Exchange). At this time, the value
of the company (and its employees' options) often increases
substantially, and the company's financial performance becomes
accountable to the expectations of the entire market. This
event is also called an initial public offering (IPO).

Golden
handcuffs.

Related to golden parachutes, these are financial
incentives designed to ensure that top-level executives do
not terminate employment within a specified period as a result
of a merger or acquisition. See also golden parachute.

Golden
parachute.

A payment or compensation package negotiated
in advance and given to a top executive who loses his or her
job as a result of a merger or acquisition. Golden parachutes
usually include a severance package, bonuses, the continuation
of benefits, vested stock options, and other perks. See also
change of control clause, fixed compensation clause, fixed-term,
fixed-sum clause, golden handcuffs, and rolling contract clause.

Grade.

Medium-sized and large companies classify jobs into grades
to provide guidance as to how much to pay people for different
types of work. A grade (or level) has a midpoint and a range,
and often a number to identify it. The employees who are paid
the least are usually not called 1s, but 3s or 4s.

Grant
price.

This market price of a stock at the time the employee
is granted an option. The employee may pay less than this
amount if the exercise price is at a discount from the grant
price.

Growth
fund.

A mutual fund invested primarily in stocks from
emerging companies. Profit is expected from increases in stock
values rather than dividends.

Growth
and income fund.

A fund that invests for long-term growth
income from stocks as well as regular dividends.

Growth
stock.

A stock from a company expected to show quick earnings
and revenue growth, but little if any dividends.

Growth
stock fund.

A mutual fund invested primarily in growth
stocks. Also known as an equity growth fund.

In financial terms, the harvest is the moment when it is possible
to get money out of the company  usually through sale
of the company (merger or acquisition) or through IPO.

Health Maintenance Organization.

A type of medical insurance
under which insurance companies must approve certain services
(other than emergencies), hospitalization, or tests. Patients
are limited by participating doctors and hospitals, and must
be referred from their primary care physician (PCP) to specialists.
HMO practitioners get paid both by capitation (a fee the company
pays the practitioner with each patient who signs on) and
by volume of patients, which is sometimes very large.

Holiday
bonus.

In conjunction with the holiday season, many employers
choose to offer employees a cash bonus as a way of saying,
"Happy Holidays and thank you."

HR.

Human resources. The personnel department.

Human resources.

HR. The personnel department.

Incentive.

This is more or less a synonym for bonus, commission, or other
pay that depends on performance.

This type of stock option meets certain
requirements set up by the Internal Revenue Code. It's available
only to employees of a company. With this type of option,
income is reported only when the stock is sold, not when the
option is received or exercised. If the stock is held long
enough, the employee may report long-term capital gains instead
of compensation income, which could offer a significant tax
savings.

Income mutual fund.

A fund invested in securities that produce
dividend income.

Incumbent.

A person doing a job; the employee.

Indemnity
plan.

Employees with indemnity plans as medical insurance
have absolute freedom of choice in selecting a physician or
specialist. These plans, which are more expensive than some
alternatives, still use old methods such as claim forms and
reimbursement checks. Also known as fee-for-service.

Index
option.

An option you are not allowed to exercise unless
your companys stock offers a better return than the
financial instrument to which the option is indexed, often
U.S. treasury bills. Unless your company is doing very poorly,
you probably wouldnt exercise at this rate anyway.

Individual
incentive.

A bonus based on your performance, separate
from any bonuses based on the performance of a team or group.

Individual
Retirement Account (IRA).

A tax-advantaged retirement
account which enables an employed person to invest up to $2,000
each year.

Inflation.

The rate at which the price of goods and services rises.

Initial
public offering.

An IPO. This is the first sale of stock
of a company in a publicly traded market such as the New York
Stock Exchange. See also going public.

Instant
incentive.

A reward (bonus) on the spot for a particular
achievement.

Internal
compression.

When new hires are brought in at higher salary
levels than incumbents. Also called salary compression.

Internal
equity.

The practice of paying employees consistent with
the organization's pay structure.

Internal
job.

A job within the employing organization. See also
external job.

Intrinsic
reward.

Job satisfaction an employee experiences out of
the pleasure of working in a rewarding job in a good company.

Investment
portfolio.

See also portfolio.

IPO.

An initial public offering. This is the first sale of stock
of a company in a publicly traded market such as the New York
Stock Exchange. See also going public.

A collection of similar jobs that can be
found in a variety of industries. An accountant, for instance,
can be found in accounting, banking, or financial services.
Within each job category are a number of job titles.

Job
classification system.

A means of organizing and assigning
levels to jobs based on job content. Classification systems
form the foundation of pay structures.

Job
content.

The qualifications, responsibilities, and duties
of a job, as described in a job description.

Job
description.

A summary of the primary responsibilities
of a job. Job descriptions play a critical role in determining
the market value of a job.

Labor, like other services, behaves
according to market dynamics including supply and demand.
Just as businesses must be responsive to market conditions
for goods and services in general, they must be cognizant
of market conditions that pertain to the "purchase" and "sale"
of labor. The employee is the seller, and the company is the
buyer.

Large-cap
stock.

A stock from a high-profile, well established company
with a proven track record in earnings and dividend payments.
Also known as a blue-chip stock.

Listing
agent.

A real estate agent who puts a home for sale on
the Multiple Listing Service, working primarily with the home
seller. See also real estate agent, real estate broker,
realtor.

Liquidity.

Money that can be moved from one place to another. For example,
with stock options, if you have the right to purchase stock
worth $1 million for the price of just $10,000, but
you dont have $10,000, you lack the liquidity to
realize the gain. Most employers have plans that let employees
purchase and sell stock in one gesture to eliminate the liquidity
problem.

Lockup
period.

A period of time after an IPO during which an
employee is restricted from exercising his or her stock options.

Mergers and acquisitions. A merger is the combination of two
companies; an acquisition is the purchase of one company by
another. When the company you work for is bought or merges
with another company, management changes, people are laid
off, and often the competitive landscape of the industry changes.
But consolidation in an industry can also provide opportunities
for employees who embrace change and understand how to create
value. If your company is acquired, you want to have negotiated
for accelerated vesting in all your stock options. See also
vest.

Major
medical policy.

This is a type of fee-for-service policy
geared toward those with catastrophic illnesses, and cover
large, more obscure expenses, such as live-in nurses or laboratory
tests. Premiums are very low (sometimes lower than those of
HMOs), but deductibles are very high, so if a patient were
not totally healthy, but not particularly ill, this plan will
not be cost-effective.

A market adjustment is an increase in an individual's
base salary intended to provide a more fair and consistent
pay level. An employer may make a market adjustment (or equity
adjustment, as they are sometimes called when the comparison
is made internally) to keep the position competitive in the
labor market. See also equity adjustment.

Market
competitive ratio.

A persons salary divided by the
Salary Wizard's median salary.

Market
price.

The value of a job on the labor market. Compensation
professionals consult relevant compensation surveys to determine
the market price for a job in the company's classification
system by benchmarking jobs according to job content as depicted
in job descriptions.

Market
sample.

The set of companies selected to be the relevant
group for comparison of survey data.

Market
value.

The value of a job in the external market as defined
by the company. For example, if the company's strategy is
to target base pay at the 50th percentile, then the 50th percentile
may also be called the market value in that company.

Mature
ISO stock.

When purchasing incentive stock options (ISO),
especially if the company is about to go public or has recently
gone public, employees are commonly required to hold on to
the stock (not sell their shares) for a predetermined period,
often several years. When this holding period is over, the
stock the employee owns is considered mature ISO stock and
may be sold. The profit is then considered a capital gain
as opposed to compensation income.

Maximum.

In the Salary Wizard, the highest salary level for a particular
job; synonymous with the 75th percentile.

Mean.

The simple arithmetic average from a set of numbers.

Median.

The item in the middle when a set of data points is ranked
from the lowest to the highest, so that there is an equal
number of data points below and above it.

Medical
savings accounts.

This is a variation on flexible spending
accounts (FSAs). Similar to IRAs, employees make tax-free
contributions to these accounts, to be used for medical expenses.
With FSAs, the money contributed must be used the same year,
or else it is forfeited.

Milestone-based
bonus.

This type of bonus is offered as a reward to an
employee, department (group of employees), or an entire organization
for achieving a milestone or goal. This type of bonus may
be given to a salesperson who achieves a level of sales or
to a group of employees who meet a specific deadline or successfully
complete a project or objective in a timely manner.

Minimum.

In the Salary Wizard, the lowest salary level for a particular
job; synonymous with the 25th percentile.

Money
market fund.

A fund invested in short-term securities,
which are not insured or guaranteed by the government.

In the Salary Wizard, an average of all salaries
encompassing the United States for certain jobs. Also the
point of comparison for geographic differentials used to determine
a specific salary for a particular city and/or region.

Nonexempt.

Nonexempt employees are those who are covered by the provisions
of the Fair Labor Standards Act. Examples include employees
engaged in or producing goods and services for interstate
commerce; employees of certain hotels, restaurants, or motels;
and others. Nonexempt employees may be salaried or may be
paid according to a variety of other structures, as long as
minimum wage standards and overtime regulations are met. See
also exempt.

Nonqualified
stock option.

With this type of stock option, which has
become very popular, the employee must report income upon
exercising the stock. The gain - the difference between the
sale price and the purchase price - is treated as income for
tax purposes.

The right, but not the obligation, to purchase something at
a specific price at a specific time. In compensation terms,
a stock option.

Option
agreement.

This document (or series of documents) outlines
the terms of and rules pertaining to an employee's stock options.

Organization-wide
bonus.

A reward across the board to acknowledge employees'
contribution to a company's success.

Overall
debt ratio.

In real estate, the ratio of total monthly
expenses including housing, credit card minimum payments,
loans, and all other debts to gross monthly income. Typically,
lenders finance buyers whose overall debt ratio will not exceed
36 percent of their gross monthly income. See also debt-to-income
ratio.

Overhang.

The number of stock options issued to employees, plus the
number of stock options that could still be issued, divided
by the total number of shares outstanding. Overhang puts downward
pressure on stock prices that can be countered by the effect
of employee ownership. These plans are a common way in which
a shareholders' ownership can significantly be diluted. See
also dilution.

Adjustments to base compensation,
i.e., merit raises, as well as incentives and bonuses that
are tied to individual or company performance.

Pay
mix.

The combination of various types of rewards - such
as base pay, performance incentives, stock options, and benefits
- that an individual receives. Different types of jobs have
a different pay mix; and the pay mix varies from company to
company.

A company's system for assigning levels and
pay ranges for all of its jobs. It follows from the company's
pay philosophy and depends on having a solid job classification
system.

Performance-based
variable pay.

One kind of pay for performance, designed
to reward people for meeting their own or the companys
objectives. Skill pay, incentive pay, bonus plans, commissions,
gain sharing, and results sharing are some examples.

Perk.

Short for perquisite. Non-cash rewards that recognize exceptional
performance or commitment to the company, its goals, and its
values. Examples of perks include tickets to sports and cultural
events, extra time off, dinners, and awards ceremonies.

Portfolio.

A diversified collection of investments intended to maximize
return and minimize risk. See also asset allocation.

Preferred
Provider Organization.

A type of medical insurance that
offers more options than HMOs. The system is the same as an
HMO in that insurance companies contract with a group of practitioners.
Patients, however, are not limited to these contracted practitioners,
and may choose whomever they desire, although staying within
the network will reduce fees. Patients do not need a referral
to visit a specialist. This plan is best for those who wish
to remain with a familiar specialist; those who expect to
meet their deductibles quickly; or those to whom choosing
a doctor is of utmost importance.

Premium
option.

A type of option offered by about 5 percent of
companies. It creates a fixed exercise price at some value
that may be based on the historical performance of a peer
group of stocks or some other measure.

Principal.

The original investment. In a savings account, the principal
is the amount you put into the account. The principal on U.S.
savings accounts is insured by the federal government. The
principal on investments in the stock market is not insured.

Private
company.

A company whose shares are held by individuals
or private funds such as venture capital funds. See also IPO,
going public, and public company.

Producer
Price Index.

A measure of average changes in selling prices
received by domestic producers for their outputs. It is calculated
and issued monthly by the Bureau of Labor Statistics. See
also Consumer Price Index.

Productivity.

A term used mostly in manufacturing and processing, but applicable
to any working process. It is the measure of output of any
worker, unit of workers, machine, or an entire national economy,
in the production of goods and services. Productivity is strong
when the output level and input level are in proportion.

Promotional
increase.

Employees get promotions typically when they
have gained sufficient experience and skill and proven sufficient
performance to qualify for a position at a higher level. Typically,
but not always, a raise accompanies a promotion.

Prospectus.

When a company offers stock, it is required to issue a prospectus,
which is a document describing the financial details associated
with the investment opportunity. It contains background information
about the company, its products/services, its financial situation,
and its financial forecasts. A prospectus is designed to help
an investor make educated decisions about an investment opportunity.

Public
company.

A company whose shares are traded on public markets
such as the New York Stock Exchange. See also private company.

An irrevocable trust for a deferred compensation
plan, like an escrow account, created by the employer to protect
a highly compensated employee's deferral from change of control
or change of compensation strategy - but not, however, from
bankruptcy.

Real
estate agent.

A person who helps the buyer or seller of
a home. A listing agent puts a home for sale on the
Multiple Listing Service, and works primarily with the home
seller. A buyer's agent works primarily for buyers.
Dual agents split their time between buyers and sellers.

Real
estate broker.

A person licensed by the state to buy and
sell houses. Real estate agents can't do business without
brokers, to whom they pay commissions.

Realtor.

A real estate broker or agent who is a member of the Board
of Realtors, an organization that follows a code of ethics
beyond state license laws. Realtors sponsor the Multiple Listing
Service to which every real estate agent in the country is
beholden for listing or searching prospects.

Recognition
award.

A cash or noncash bonus that acknowledges special
achievement, sometimes through an elaborate ceremony in front
of other employees.

Referral
bonus.

Since finding top-notch and highly motivated employees
is an ongoing challenge, many employers offer their current
employees a special bonus for helping to recruit new people.
Simply for introducing an employer to a job applicant who
ultimately gets hired, a person could receive a referral bonus.

Reload
option.

Options that, when exercised using shares of stock
you already own, bring in more shares. You dont get
cash, but you get shares for shares.

Retention
bonus.

Employers offer this type of bonus to employees
who stay on the job for a period or through the completion
of a specific project.

Return
on investment.

ROI. The rate of growth of the value of
an investment. Riskier investments pay higher rates of return,
while safer investments, such as U.S. treasury bills, pay
little more than the rate of inflation.

Risk.

The possibility of losing value or failing to gain value.
Risk is measurable, while uncertainty is not.

ROI.

Return on investment. The rate of growth of the value of an
investment. Riskier investments pay higher rates of return,
while safer investments, such as U.S. treasury bills, pay
little more than the rate of inflation.

Rolling
contract clause.

A provision in a golden parachute that
says the amount an executive will be paid is defined by the
amount of time the compensation will continue from the time
he or she gives notice. See also golden parachute.

Rollover
IRA.

A conduit IRA. This Individual Retirement Account
holds money taken from your 401(k) plan while you figure out
what to do with it.

Stock appreciation right. This is a variation on stock options
that lets an employee take the amount that a group of stocks
has appreciated over time; one SAR is equivalent to one stock
option.

Salary.

The compensation an employee receives for accomplishing the
basic responsibilities of the job. In some companies' communications
about compensation, the word salary is used as a synonym for
base pay for exempt and nonexempt employees and their international
counterparts. The use of the word salary is not intended to
be a determination of FLSA status according to U.S. law. See
also base pay.

A cash payment to an employee when company
or individual goals have been reached. Payouts are typically
made at the close of the year.

Sign-on
bonus.

This is typically a one-time cash award for accepting
a job offer with a company. For a middle management or executive
level position, a sign-on bonus equivalent to between 10 and
20 percent of base salary is common practice.

Small
group incentive.

Also known as a team incentive. A type
of bonus paid to a team, department, or other group for its
achievement.

Spread.

The difference between the current market value of a stock
and the strike price.

Stakeholder.

A person or a group that has a vested interest, financial
or otherwise, in the performance of a company. Examples include
customers, employees, shareholders, residents of the area
in which the company operates, environmental groups, and prospective
investors. See also shareholder.

Startup.

A company at the very early stages of its lifecycle, defined
in various ways: less than two years old; less than $5
million in financing; fewer than 20 employees; or startup-like
in culture (operating at a fast-and-furious pace, people playing
several roles, paying close attention to conserving cash).

Stock
appreciation right.

SAR. This is a variation on stock
options that lets an employee take the amount that a group
of stocks has appreciated over time; one SAR is equivalent
to one stock option.

Stock
purchase plan.

Offers made to employees allowing them
to purchase a stated number of shares of stock.

Strike
price.

The price at which a holder of stock options is
able to purchase the stock. Also called the exercise price.

A plan that allows you to set aside
part of your pay for retirement without paying tax on the
money until it is withdrawn from the plan.

T-bills.

United States Treasury securities. Considered the closest
thing to a risk-free investment, these pay slightly more than
the rate of inflation. Often used as a benchmark against which
to measure the risk and return profile of other investments.

Team
incentive.

Also known as small group incentive. A type
of bonus paid to a team, department, or other group for its
achievement.

Total
cash compensation.

The overall cash payments made to an
employee for his or her services during a given year.

Tracking
stock.

A security established by a parent company to track
the performance of a division, especially an Internet or other
high-technology division. The assets of the division are still
owned by the parent company.

The percentage of people in a given population
who want to work, but are without a job.

United
States Treasury securities.

T-bills. Considered the closest
thing to a risk-free investment, these pay slightly more than
the rate of inflation. Often used as a benchmark against which
to measure the risk and return profile of other investments.

Upside
potential.

The possibility of making a lot of money. Stock
options provide upside potential because the stock price could
increase significantly from the price at which the employee
has the right to exercise.

A type of financing available to some promising
startup companies. Receipt of venture capital is a signal,
but not a guarantee, that a startup is on its way to becoming
an established company with the potential for an initial public
offering or the potential to be acquired by or merge with
another company. There are several stages of venture capital,
usually after the company has received financing from angel
investors. See angel investor.

Vest.

Vesting is the period over which an employee has the ability
to realize rights, usually stock options and/or employer matching
contributions to retirement savings plans. For example, a
retirement savings plan might have a five-year vesting schedule,
where after each year of employment the employee has the right
to keep an additional 20 percent of employer contributions
to the account. Or, an employee might be vested in 25 percent
of his or her stock options after each six months of employment.
Vesting schedules vary from company to company. A stock is
considered 'vested' when the employee may leave the job, yet
maintain ownership of the stock with no consequences. Employees
of some companies may need to meet certain requirements after
exercising options, such as remaining with the employer for
a predefined period, in order to keep the stock.

Vision
care.

Vision plans are mostly supplements to HMO or PPO
plans, or can be purchased separately. These cover basic eye
examinations, and sometimes discounts on eye correction equipment,
but do not include surgical procedures.

In a retirement plan, money paid out to you from your account.
If this occurs before age 59 1/2, you cannot put the money
back and you must pay a premature withdrawal penalty of 10
percent before even ordinary income taxes are assessed.